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Apple earnings allay iPhone fears, $900 billion valuation in sight

Apple Chief Executive Tim Cook says the new $1,000 iPhone X actually costs less than a cup of coffee a day “at one of these nice coffee places.”

Apple Inc. unleashed fiscal fourth-quarter results Thursday that demolished analyst expectations with a billion-dollar beat on net profit, and executives seemed to squash fears about iPhone X production by predicting the current quarter will have record revenue.

“This is going to be the best holiday season yet,” Apple Chief Executive said on a conference call after releasing fiscal fourth-quarter results. “We’re bullish.”

See Also: Apple earnings send stock to record levels ahead of iPhone X launch: Live blog recap

Apple logged fourth-quarter sales of $52 billion overall—more than half from iPhone sales—beating expectations of $50.69 billion, according to analysts polled by FactSet. Profit soared to $10.71 billion, topping analyst expectations of $9.7 billion. Muscular fiscal first-quarter guidance of $84 billion to $87 billion allayed investors’ fears about reported supply constraints and untested new features with the company’s flagship iPhone X, priced at $1,000—the most aggressive price for the powerful pocket-size computer in the company’s history.

The strong performance sent Apple AAPL, +0.73% stock up about 3% in after hours trading, edging the world’s most valuable company close to a $900 billion valuation. Apple ended Thursday with a market capitalization of $868.9 billion, according to FactSet, after increasing 45.3% so far this year, as the Dow Jones Industrial Average DJIA, +0.35% , which counts Apple as a component, has added 18.6% and the S&P 500 index SPX, +0.02% has increased 15.2%.

Apple Inc.

Apple’s guidance suggests that executives expect strong iPhone X demand and an increase in the average sales price for the iPhone segment, but the ability to make enough iPhones to sate that demand is still a question, according to Daniel Ives, head of technology research at GBH Insights.

“They’re a bit hamstrung by supply in the December quarter,” Ives told MarketWatch in an interview Thursday. “Their [executives] are tight-lipped about supply. We don’t think you’ll see supply balance demand until, at the earliest, March. They have 20 million units built, but I believe preorder demand is closer to 50 million.”

On the call with analysts, Cook said that iPhone 8 and iPhone 8 Plus sales were the strongest in the company’s history, declaring the iPhone 8 Plus an “instant” best seller. While the iPhone X had just gone on sale “minutes” earlier, Cook said that he had heard reports of lines of hundreds of people in Sydney, Australia waiting to purchase the gadget.

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Cook did not share additional details about iPhone X sales and said that the company had not previously staggered a phone release, or developed a phone as advanced as the iPhone X.

“We’re going to see what happens,” he said.

We will also see where Apple’s stock goes after the report, as it needs to gain only about 3.6%, to a share price of $174.24, to crack the $900 billion market cap barrier for the first time. If the stock manages to hit $193.60 or above, at the current share count, Apple will be the first company in U.S. history to achieve a market cap of $1 trillion.

“The magic number is, if they have $12 of earnings power going into 2018 or 2019, from a multiples perspective, you start to look at a stock that‘s in the $190 range,” Ives said. “You’ll get a bump tomorrow in the stock price, then investors will digest whether it’s a product cycle or a supercycle. If it’s a product cycle, you don’t hit $1 trillion. If it’s a supercycle, you hit $1 trillion.”

In the fourth quarter, Apple sold $28.85 billion worth of iPhones—Apple executives took pains on the earnings call to remind analysts that it does not break out the mix of devices within that number—which amounted to 46.7 million devices. Analysts expect the company to sell 80 million devices in the fiscal first quarter.

When asked by analysts on the high price of the new iPhone X, Cook said that consumers can buy an iPhone for $33 a month in the U.S. from some carriers.

“That’s less than a coffee a day, at one of those nice coffee places,” Cook said.


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